A Philippine legal article on when broker “cuts” are unlawful, and what remedies are available

1) What “illegal commission deduction” usually means

In Philippine practice, disputes arise when a real estate broker (or someone claiming to be one) takes a “commission” or “broker’s fee” by deducting it from money they handle—for example:

deducting from sale proceeds before remitting to the seller
deducting from a reservation fee/earnest money or down payment
deducting from a tenant’s deposit or rental payments
charging both sides without disclosure
taking “extra” money through a net listing or hidden mark-ups
collecting a commission despite no valid authority, no contract, or no procuring cause
collecting any broker fee while unlicensed or improperly practicing

Legality turns on (a) authority and contract, (b) licensing rules, (c) fiduciary duties of agents, and (d) how the money was received and disbursed.

2) The governing legal framework in the Philippines

A. Civil Code (Agency / Obligations / Contracts)

A broker relationship is generally treated as a form of agency: the broker is engaged to find a buyer/tenant or arrange a transaction. Core Civil Code principles that matter:

An agent must act within authority and follow the principal’s instructions.
An agent must render an accounting and deliver/return what they received by reason of the agency.
An agent owes loyalty and good faith; self-dealing, undisclosed conflicts, and secret profits are actionable.
Damages may be recovered for breach of contract, fraud, abuse of rights, or unjust enrichment.

These principles are the backbone of claims to recover “deducted commissions,” especially when the broker held money “in trust.”

B. Real Estate Service Act (RESA) – RA 9646 (licensing and lawful practice)

RESA regulates the practice of real estate service. Key points relevant to commissions:

Only duly licensed real estate brokers may lawfully practice brokerage and hold themselves out as brokers.
Real estate salespersons must be properly accredited/registered under a licensed broker; they generally should not independently practice as brokers.
Illegal practice and misrepresentation can lead to administrative sanctions (license suspension/revocation) and penalties under RESA.

A “commission” collected by an unlicensed person—especially if they present themselves as a broker—becomes legally vulnerable and can trigger enforcement.

C. PRC / Professional Regulatory Board of Real Estate Service (discipline and ethics)

Brokers are subject to professional standards. Conduct that commonly leads to discipline includes:

collecting fees through deceit, misrepresentation, or undisclosed arrangements
mishandling client funds, refusing to account, or taking unauthorized deductions
conflicts of interest and double compensation without consent
advertising or dealing in a manner inconsistent with professional integrity

3) Who can legally charge or collect a “broker’s commission”

A. Licensed real estate broker (legal practice)

A broker who is properly licensed can charge a commission only if there is a lawful basis (express or implied agreement), and only within the bounds of agency and contract law.

B. Salespersons and “property agents”

In many real-world setups, the person interacting with clients is a salesperson. If they are not a licensed broker:

their authority and entitlement to fees typically flow through the broker they are accredited under, and
they should not present themselves as the broker and personally collect broker-level compensation unless properly structured and disclosed.

C. Unlicensed individuals

If the person is not licensed and not lawfully acting under a licensed broker, taking “commission” as a broker can expose them to:

RESA enforcement for illegal practice/misrepresentation
civil claims for return of money
and, depending on facts, criminal exposure if money was taken through fraud or misappropriation

4) When a commission is “earned” (the usual rules)

There is no single fixed statutory commission rate in ordinary private brokerage; the decisive question is what the agreement says and whether the broker was the procuring cause of the deal.

Common legal approaches:

A. Express brokerage agreement (best case for clarity)

If there is a written Authority to Sell/Lease or brokerage contract, it usually answers:

commission rate or amount
who pays (seller, buyer, landlord, tenant, or shared)
when payable (upon signing, upon down payment, upon deed/turnover, upon full payment, etc.)
whether broker may deduct from proceeds (only if expressly authorized)

B. Implied agreement and procuring cause (common in informal deals)

Even without a formal contract, a broker may still claim compensation if they can show:

they were engaged (directly or impliedly), and
they were the effective cause of bringing the parties to a meeting of minds, and
the deal closed substantially on the terms arranged

But this is fact-heavy and often contested—especially when money is deducted without clear authority.

C. Exclusive vs non-exclusive listings (impact on entitlement)

Exclusive authority often means the broker is entitled to commission if the property is sold during the exclusivity period, sometimes even if the owner finds the buyer (depending on the clause).
Non-exclusive authority usually means commission belongs to the broker who actually procured the buyer/tenant.

5) What makes a commission “deduction” illegal or unlawful

A broker’s commission becomes legally vulnerable when it is taken without authority, without disclosure, without an enforceable basis, or in breach of fiduciary duties.

Category 1: No written or clear authority to deduct from funds held

Even if a broker may be entitled to a fee, deducting it from money they hold (sale proceeds, deposits, earnest money) is risky unless there is:

explicit written authorization to deduct, and
clear agreement on amount and timing, and
transparency and accounting

Without that, the broker can be forced to return the deducted amount, and may face liability for mishandling funds.

Category 2: Deducting from earnest money / reservation fees without consent

Earnest money and reservation fees are often treated as funds intended for the seller/landlord (or to be applied to the price/rent), unless the contract states otherwise. Deductions become suspect when:

the broker acts as if the earnest money is “their money”
the broker withholds it during disputes
the broker takes commission even when the deal fails for reasons not attributable to the client (depending on contract terms)

Category 3: Charging both sides (double compensation) without informed consent

A broker taking compensation from both buyer and seller (or landlord and tenant) can be unlawful if:

it was not fully disclosed, and
the parties did not give informed consent, and
the arrangement prejudiced either party (conflict of interest)

Undisclosed dual compensation often supports claims for refund, discipline, and damages.

Category 4: “Net listings” and secret profits

A net listing arrangement (seller demands a “net amount,” broker keeps the excess) can create high conflict-of-interest risk. It becomes particularly problematic when:

the broker did not clearly disclose the structure,
the broker misrepresented the true price to either side, or
the broker pocketed “excess” as a secret profit

These cases commonly resemble breach of fiduciary duty and may also raise fraud concerns.

Category 5: Inflated, hidden, or invented charges

Examples include:

“processing fee,” “marketing fee,” “documentation fee,” or “admin fee” that was never agreed
“commission top-up” inserted late in the process
“VAT” or “tax” add-ons misrepresented to pressure payment
forcing a party to pay a commission the contract assigns to the other party

A broker may charge only what is agreed (or provable under implied agreement), and must not fabricate fees.

Category 6: Collecting despite no real brokerage service or no procuring cause

A broker who did not actually bring about the transaction (or whose involvement was minimal and not causal) may have no enforceable right to commission—especially if:

the client never engaged them, or
their “service” was unsolicited, or
the buyer/tenant was independently sourced, and no exclusive agreement exists

Category 7: Collecting while unlicensed / misrepresenting broker status

Taking “broker commissions” while unlicensed or misrepresenting credentials exposes the collector to:

RESA enforcement (illegal practice)
civil restitution (return of money)
and potentially criminal complaints if money was obtained through deceit

Category 8: Mishandling client funds (accounting/refusal to remit)

When a broker receives funds in trust and fails to remit, refuses to account, or deducts unauthorized amounts, it can trigger:

civil action for accounting and return
administrative discipline
and, depending on facts, criminal liability for misappropriation-type offenses

6) Possible liabilities of the broker (and sometimes the salesperson)

A. Civil liability (refund + damages)

Common civil causes of action include:

Breach of contract (violating commission terms / unauthorized deductions)
Unjust enrichment (keeping money without legal basis)
Abuse of rights / bad faith (especially where coercive tactics are used)
Action for accounting (when broker handled funds and must disclose receipts/disbursements)
Damages (actual, moral in egregious cases, exemplary where warranted; plus interest)

B. Administrative liability (PRC discipline / RESA violations)

Possible outcomes include:

reprimand or censure
suspension or revocation of broker license
sanctions against salespersons involved
penalties for illegal practice or unethical conduct

Administrative cases are powerful because they can stop repeat behavior and pressure compliance.

C. Criminal liability (fact-dependent)

Criminal exposure can arise where the conduct goes beyond a contract dispute, such as:

obtaining money through deceit or false pretenses
receiving money in trust and misappropriating it
falsifying documents, receipts, or authority
extorting payment through threats

Whether a specific criminal charge fits depends on proof of the elements (intent, deceit, misappropriation, entrustment, etc.).

7) Remedies and where to file in the Philippines (practical route map)

Step 1: Secure evidence immediately

Collect and preserve:

brokerage agreement / Authority to Sell/Lease / listing agreement
proof of payment and deductions (receipts, bank transfers, remittance slips)
chat messages, emails, Viber/WhatsApp threads
screenshots of ads where the broker represented rates or terms
proof the broker handled the funds (acknowledgments, deposit confirmations)
IDs and claimed license numbers

Step 2: Verify broker licensing

Confirm whether the person is a licensed broker and/or an accredited salesperson under a broker. Misrepresentation strengthens remedies.

Step 3: Send a written demand for accounting and refund

A strong demand letter typically requests:

itemized accounting of all amounts received
legal basis for any deduction
return of unauthorized sums by a specific date
clarification of commission basis (who pays, when due)

Step 4: File administrative complaint (PRC / Board)

Administrative cases are appropriate when:

the broker deducted unauthorized amounts
there is double compensation, secret profit, or misrepresentation
funds were mishandled or not accounted for
unlicensed practice is involved

Step 5: File civil action for recovery

If the issue is primarily money recovery:

Small claims may be an option for straightforward refund disputes within the threshold and where the claim is for a sum of money (and no complex relief is needed).
Regular civil action may be needed if you seek accounting, damages beyond simple refund, injunction-type relief, or if issues are factually complex.

Step 6: Consider criminal complaint (when facts support it)

A criminal route becomes more viable where:

money was entrusted and not returned
there is clear fraudulent inducement
there are falsified documents or deliberate deception

8) Frequent fact patterns (and how Philippine law typically treats them)

Pattern A: Broker deducts commission from sale proceeds without written authority

Common outcome: refund/return is strongly arguable absent written authorization; broker must account and cannot unilaterally “self-pay” from entrusted funds.

Pattern B: Broker takes commission from buyer and seller without disclosure

Common outcome: breach of fiduciary duty and ethical violations; refund and discipline are common targets; civil damages possible where prejudice is shown.

Pattern C: Broker withholds earnest money claiming it is “non-refundable commission”

Common outcome: depends on the underlying agreement. If the money was intended as earnest money for the seller and the broker had no authority to treat it as their fee, withholding is vulnerable.

Pattern D: “Net price” scheme where broker pockets the difference

Common outcome: risky and often attacked as secret profit/self-dealing, especially without crystal-clear, informed, written consent.

Pattern E: Unlicensed person collects “commission”

Common outcome: strong case for restitution and for RESA enforcement; misrepresentation increases exposure.

9) Best practices to prevent illegal deductions (client-side safeguards)

A. Use a written brokerage agreement

Include:

exact commission rate/amount
who pays it
when it is earned and payable
whether any portion may be deducted from proceeds (and how)
what happens if the deal fails (buyer backs out; seller backs out; financing fails)

B. Control fund flows

Avoid letting brokers hold large sums unless absolutely necessary and properly documented.
If a broker must receive funds, require:
- written authority describing the fund’s purpose
- rules on custody and disbursement
- deadlines for remittance
- a clear accounting obligation

C. Require transparency on dual agency/dual compensation

If the broker has any relationship with the other party (or plans to charge both sides), require:

written disclosure
written consent
clear statement of how conflicts are managed

D. Demand official receipts and proper documentation

Commissions are professional income and should be properly receipted/documented. Lack of proper documentation is a red flag.

10) Sample protective clauses (usable concepts)

These are commonly used concepts to reduce disputes:

A. No unilateral deduction

“Broker shall not deduct any commission or fee from any funds received in connection with the transaction unless expressly authorized in writing by the Principal specifying the amount, timing, and basis of deduction. Broker shall render a full accounting of all funds received and disbursed.”

B. Commission trigger

“Commission is earned only upon (a) execution of a binding contract between Principal and buyer/tenant procured by Broker, and (b) receipt by Principal of the agreed triggering payment (e.g., down payment), unless otherwise stated.”

C. Dual compensation disclosure

“Broker shall disclose in writing any intention to receive compensation from the other party. No dual compensation shall be collected without the prior written informed consent of the Principal.”

D. Earnest money custody

“Earnest money is held solely for the benefit of the parties in accordance with the sale/lease agreement and shall not be treated as Broker’s compensation absent explicit written agreement.”

11) Core takeaway principles

A broker may be entitled to a commission, but self-deducting it from entrusted money without authority is legally risky and often unlawful.
Undisclosed double compensation, secret profits, and invented fees are prime grounds for refund, discipline, and possible criminal exposure.
Licensing matters: collecting “broker commissions” while unlicensed or misrepresenting status can trigger RESA enforcement and strengthens civil claims.
The strongest cases are built on documents and fund trails: written authority, proof of remittance, receipts, and clear commission terms.